By JOHN COOK, SEATTLE POST-INTELLIGENCER REPORTER

Published 10:00 pm, Thursday, June 2, 2005

In many respects, November 2000 was one of the scariest times to start a software company. The Nasdaq was at the beginning of a 30-month slide, dot-commers were losing jobs by the hundreds, the presidential election remained undecided and venture capitalists were hiding under rocks in hopes that everyone would forget the craziness of the past few years.

But amid this tumultuous period, a small group of Seattle-area entrepreneurs started developing a new product to help companies better manage their technology investments.

"It was pure grit and determination as far as staying funded and staying in business during that time frame," says James Maiocco, who mortgaged his house in order to start Klir Technologies. "There was not a lot happening in the venture capital markets at that time, so we stayed very small and lean."

Four years later, that strategy has paid off. Today, Klir Technologies plans to announce an $8.7 million first round of funding from Ignition Venture Partners and MK Capital. The money comes as Klir begins to roll out its first product, a hosted software service that allows businesses to track how much they are paying for routers, servers, Internet connectivity and other tools and applications.

Maiocco -- a former attorney with Orrick Herrington & Sutcliffe -- said the company was fortunate to start when it did. As a corporate technology attorney in the late '90s, he witnessed several examples of startups that suffered because they had too much money.

"They had a lot of money and essentially took a shotgun approach instead of hitting the target square on the bull's-eye," the 34-year-old chief executive said.

The fact that venture capital financing was not readily available to Klir in the early days helped the company focus on the core opportunity, he said. Klir also received a boost from several angel investors who committed $3.2 million during the research, development and testing phases.

It is still too early to determine if Klir will hit the mark. The company, which released its first product last month, has only eight customers and 22 employees. It is also just starting to build relationships with resellers of the technology, a key component of Klir's strategy since it will not employ a direct sales force.

Furthermore, the market is very much in the nascent stages. Persuading corporate customers to try a new type of service from a small startup company will not be easy, said George Hamilton, a senior research analyst at the Yankee Group.

"They are bringing a new model to market, so there is a lot of education they will have to do as they are out trying to generate revenue," Hamilton said. "That takes a lot of effort."

Still, he said Klir's message should resonate with medium-sized companies that don't have the resources to buy large infrastructure management systems from companies such as Computer Associates, Hewlett-Packard and IBM.

Maiocco agrees, drawing comparisons between his company and Salesforce.com. The San Francisco company has quickly carved a $300 million niche in the customer relationship management software market by selling its hosted service to more than 15,000 small and medium-sized companies.

Maiocco thinks there is an opportunity to do the same thing in the market for information technology asset management.

"It is exactly the same model," he said.

"We are going after the Fortune 20,000 and those mid-market companies that are below the radar of the big three of H-P, IBM and Computer Associates."

Customers pay between $500 and $20,000 per month for Klir's subscription service, with an average sale of about $3,000 per month.

In many cases, Maiocco said, a company can immediately identify cost savings across their information technology ecosystem. Customers include Alpharma, Itron and PogoJet.

"We track the ... fundamental problems that the CFO and CIO are trying to understand, which is, 'What am I getting for all this money and how do I invest more wisely?' " he said. "It is not so much troubleshooting at the application level as it is helping them to manage the (information technology) portfolio just like any other asset."

One of the biggest savings usually occurs in identifying unused Internet connectivity or phone service, he said. For example, Klir's system could tell a corporation that it is paying for 2,000 minutes per month for telephone service when, in fact, the average usage is just 250 minutes.

If Klir can help medium-sized companies better understand those types of issues, Hamilton said, the company should meet with success.

"It is certainly not without challenges, but I think they have potential," he said.

Now that the venture capital money has arrived, Klir also must stay true to its frugal roots. And it must do so while attempting to address a fast-growing market that could top several billion dollars. Maiocco is hopeful that the company, which entertained multiple offers from venture capital firms during the recent fund-raising round, will follow in the footsteps of some other technology companies that emerged from economic recessions.

"If you go back and look at some of the most successful companies to date, Oracle or Cisco, both of them were started in economic down times," he said. "It forces you to really focus concretely and really concisely on what is the core problem."